Why failing is not all it's cracked up to be

In tech, failure is celebrated. Fab, for example, is on its third business model and got $150 million to keep trying. But entrepreneurs behind the flops still say laying an egg is "humiliating," no matter how far they bounce back.

The on-again, off-again troubles of online shopping site Fab raise the question of whether the e-commerce darling can ride out its current problems and succeed as a seller of private-label goods and custom furniture, its third business model in four years.

More generally, it highlights the tech community's willingness to court, even celebrate, failure in a universe where two-thirds of venture-backed companies shut their doors within a year. Fab had run through two business models, yet investors were eager to give it even more money—an astounding $150 million just a year ago—to keep trying. The company recently acquired One Nordic Furniture Co., a retailer known as the "luxury Ikea."

Many in tech celebrate failure much as they do college dropouts who make it big: Steve Jobs-like visionaries whose failures were simply ideas that were ahead of their time. Certainly, failure offers hard-won lessons—the tech equivalent of training to be a Navy SEAL—that can help an entrepreneur succeed in the next venture. Regardless, entrepreneurs themselves are far less sanguine about the experience.

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"[Failure] is a Catch-22, and I would never wish on anyone else what I felt while doing my first company," said Kathryn Minshew, a co-founder of the defunct PYP Media, a site for professional women that skidded to a halt in 2011 after less than a year in business largely because the founders couldn't agree on how to grow the company.

"The hundreds of late nights and weekends, the money worries, and then losing it all—it feels humiliating in front of the people who supported you," she said.

Lisa Morales-Hellebo had a similar experience. She shut down her first venture, Shopsy, in 2013 after she was unable to line up enough retailers as partners for the fashion shopping service. She learned from the experience, she said, but "it was torture." Now she is the executive director and co-founder of the New York Fashion Tech Lab.

Some people say that failure is being celebrated because so much of it is being underwritten by other people's money. The prospect of scaling up beyond his means is one reason David Reischer, founder of LegalAdvice.com, won't take investor capital.

"[Failure is] glorified as being acceptable because it's all fake money," he said. Mr. Reischer's mortgage brokerage, along with its online portal, nationwidemortgagenews.com, closed its doors after the 2008 financial crisis.

Some have even turned the mystique of failure into a business model. There's FailCon, the conference where startup founders study failure and "prepare for success" and Founders@Fail, where entrepreneurs learn how to avoid mistakes from those who have made them, along with countless books about the virtues of failing. Canada's University of New Brunswick even has a special Failure Fund to bankroll entrepreneurs whose companies have flamed out.

It's a far cry from what happens in parts of the world where failure is a cause for shame.

"The lack of stigma is what enables people to take a chance in the first place," said Vince Ponzo, director of the Eugene Lang Entrepreneurship Center at Columbia Business School.

But the idea that mistakes in one business can be applied to another isn't always true. A Harvard Business School study found that while only 21% of venture-backed first-time entrepreneurs succeed, not that many more do so the second time around. Only 22% of entrepreneurs who have failed end up with a viable, ongoing business on their second try, according to the 2009 study.

"I do think it's a very slippery slope, to think of failure as valuable in and of itself," said Schuyler Brown, host of Founders@Fail. "When starting a new company, your prior experience might not be relevant."

Even the lessons of failure, said some, could have been learned in other ways.

"You don't have to learn firsthand," said Ms. Minshew, now the CEO and co-founder of the Muse, a career-development site. "A lot of the mistakes we made could have been avoided, and we would have been so much better off." In her first company, for example, the four co-founders all had the same set of skills. It would have been better, she said, if they had different talents: "We couldn't agree on who was better at what and who should be in charge of what."

Even though failure has become acceptable, most entrepreneurs want to learn the lessons and move on, not celebrate it. Joe Apprendi, founder and CEO of hot ad-tech company Collective, started his first venture in 1989, a DVD-rental service in airports that he and his partner shuttered a couple of years later, in part for lack of capital.

"I don't talk about it—'badge of honor' is not how I would explain it," said Mr. Apprendi. "I'd rather not fail, but if you fail, it's OK and you should learn from it."

Courtney Williams' first venture, a would-be chain of allied health schools, barely got off the ground before he and his partner called it quits because they ran out of money. He went on to co-found teacher instruction platform Torsh, where he is also the CEO. "Where I'm different and where a lot of entrepreneurs are different is that you don't necessarily think a failure means you can't try again," he said.

As for Fab, the jury is still out. The company reportedly still has enough cash to keep it going for 40 months, but if the current strategy flops, another pivot could put a damper on investors' enthusiasm.

Correction: Shopsy shut down in 2013. The year was misstated in an earlier version of this article published on June 18, 2014.